One point is that once the CAD grows larger, a larger amount of money flows out of a country, and that will finally lead to an increase in the supply of that country's currency in the global economy. Then, as the result of this increase in the supply of money, a depreciation of the currency will occur.
Also, as the result of the depreciation, imports will become more expensive in domestic market. Theoretically speaking, in a short period of time, CAD will increase due to money outflows on Net Goods or Net Services accounts. However, as long as the purchasing power of the incomes of consumers can not satisfy them with more imports, they might reduce spending on such imports, and the CAD will be improved.
In some cases, foreign investors would also consider the CAD a criterion or an indicaton of the health of an economy, when making decisions of investments in a country. Once the CAD grows to a high level, investors, especially financial investors, might think that it's risky to invest into this country since the country's businesses and industries might experience difficulty in repaying loans or dividends in the future. Therefore, less investments, lower the demand for the currency, and depreciation occurs.
Back to the example of the appreciated value of the Renminbi (Chinese Yuan，人民幣), it's now regarded as a disadvantage to the Chinese economy by some economists, because it reduces the competitiveness of the Chinese exports. In theory, China will gain from its export in a short run, but it won't give China more advantages in the future, because Vietnam is another fast growing country that is noticed by western investors, as well as other ACEAN nations. Therefore, in 2006, I remember, the Chinese government established an economic plan, aiming to transform China's major industries into technological and heavy industries, to avoid competition in the future while receiving higher export revenue.
lol...... just typed these up according to my memory...
